[Robert J. Fouser] Dealing with labor market duality

South Korea continues its steady march back to normal life as the worst of the COVID-19 pandemic recedes. The nation continues to earn international praise for its effective response to the pandemic.

As most nations begin to emerge from emergency measures, attention has turned to rebuilding economies reeling from lockdowns. Though Korea managed to escape lockdowns, deteriorating economic conditions are creating new challenges.

In the first quarter of 2020, gross domestic product declined by an annual rate of 1.4 percent, the first decline since the fourth quarter of 2008. The International Monetary Fund projects that the economy will shrink 1.2 percent for the full year. That would make 2020 the first year of negative growth since the 5.1 percent decline in 1998.

Other major nations fared much worse. China, where the pandemic first hit, saw its GDP fall by an unprecedented 6.8 percent, the first drop in decades. The US saw a sharp 4.8 percent decline and expects a much larger decline in the second quarter. Japan, meanwhile, is now officially in recession after GDP declined 3.4 percent in the first quarter of 2020 and 6.4 percent in the fourth quarter of 2019.

The IMF projects that China will recover enough to achieve 1.2 percent growth for the 2020. The US will decline by 5.9 percent, the worst decline since the Great Depression in the 1930s. The eurozone will decline by 7.5 percent with Italy and Spain being particularly hard hit. Except for India, which will grow by 1.9 percent, other developing economies will see declines in GDP.

These dire GDP numbers translate into millions of lost jobs and businesses, causing widespread hardship around the world. The World Bank recently estimated that the pandemic could push as many as 60 million people back into extreme poverty after years of decline. Nations are scrambling to implement policies to mitigate the worst of the economic damage.

The Korean government has implemented a series of extra budgets containing direct payments to individuals, rescue packages for troubled businesses, and other measures to support the economy. The focus of the efforts has been to protect jobs to prevent the economy from spiraling downward.

The interest in protecting jobs amid a crisis of this magnitude is understandable. Many other advanced nations have adopted similar policies to protect employment. The desire to protect jobs in Korea, however, shifts the focus away from long-standing problems caused by the dual labor market.

A dual labor market is one with two tiers: regular and non-regular workers. Regular tier workers enjoy good wages, social benefits, and job security. Non-regular tier workers, by contrast, receive lower wages, few or no social benefits, and have low levels of job security. The two tiers overlap, and all economies have varying degrees of labor market duality.

In Korea’s case, labor market duality is large. Data on OECD countries in 2018 covered three categories -- part-time employment, temporary employment, and self-employment --dominated by non-regular tier workers. At 12.2 percent, Korea was below the OECD average of part-time employment. Temporary employment in the country stood at 21.2 percent and self-employment at 25.1 percent, both of which were much higher than the OECD average.

Definitions of different types of employment vary among nations, but the percentage of non-regular workers in Korea is clearly on the high end for developed countries. A large percentage of non-regular workers often leads to lower productivity and social inequality. In Korea’s case, women, youth, and older workers make up a large share of the non-regular tier. Regular tier workers, meanwhile, are more likely to be men with university degrees.

To address the problems of the dual labor market, the government should shift the focus from jobs to workers. Korea already has universal health care that benefits all workers. This system should be protected and strengthened. The National Pension Scheme should be strengthened to benefit non-regular-tier workers.

Among non-regular-tier workers, the self-employed are particularly important. As Korea has developed, the percentage of self-employed workers has gradually declined, but at 25.1 percent, it remains higher than any other developed country except Greece. Measures to increase profitability of self-employed workers are needed. Rent subsidies and tax relief will help increase profitability and strengthening self-employed pensions will help reduce inequality.

Recovery from the COVID-19-induced economic difficulties will take time, but it also presents an opportunity to address structural problems, such as labor market duality, that are easy to overlook when times are good. Focusing on workers over jobs is a good place to start.

Robert J. FouserRobert J. Fouser, a former associate professor of Korean language education at Seoul National University, writes on Korea from Pawtucket, Rhode Island. He can be reached at robertjfouser@gmail.com. -- Ed.